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10th NPC & CPPCC, 2007> Exclusive
UPDATED: March 15, 2007 exclusive
Technology Banks Needed to Ease Capital Shortage

In his speech during the recent CPPCC sesson, Zhang Huaben, a CPPCC member, suggested that China may develop technology banks as a means to ease the capital shortage of small and medium-size innovative technical enterprises.

Small and medium-sized enterprises, especially technical ones, make up the most active part of the force of independent innovation in China. They contribute a cutting edge in quality and efficiency that domestic large enterprises cannot match. They contribute 66 percent of patent inventions, 74 percent of technological innovations and 82 percent of all new product development. It is of vital importance for China to give full play to the vanguard role of small and medium-size enterprises in its effort to implement the national strategy of independent technological innovation and develop an innovative society.

However, China's small and medium-sized enterprises are faced with many challenges, and the most serious one is financing.

According to statistics, by the end of June 2005, only 16 percent of the total loans of major financial institutions had gone to small and medium-sized enterprises, which created nearly 60 percent of China's total GDP. These enterprises' demand for loans is far greater than the amount supplied by financial institutions.

The financing shortage of enterprises located in Beijing's Zhongguancun Science Park has exceeded 40 billion yuan, with an average of 2.8 million yuan for each enterprise, according to a survey. This imposes a negative effect on their technological innovation.

Technology banks may be designated as regional banks for mature technical enterprises or small and medium-size technical enterprises supported by venture capital.

The state, by formulating preferential policies, can encourage technology banks to establish a close cooperative relationship with or even to become partners or shareholders of venture capital institutions. In this way, they can make full use of the latter's advantage in human resources, organizing capability and risk control, added Zhang.

Technology banks will only underwrite corporations and provide services for technological innovative projects.

Local governments and high-tech parks will be allowed to hold a small number of shares in the banks. The banks will accept deposits and develop innovative financial products and credit services. By adjusting interest rates and offering loans on intangibles (intellectual property), technology banks will be able to provide a reliable source for future investments.

In addition, Zhang suggested the establishment of technology banks on a trial basis in high-tech parks in cities, such as the Zhongguancun Science Park in Beijing, the Zhangjiang High-Tech Park in Shanghai and the High-Tech Development Zone in Shenzhen.

As a final consideration, the listing criteria for technology-oriented small and medium-size enterprises should be made easier. China should also consider developing a nasdaq-type market.

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